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Small Business Credit Card Processing | What to consider

Posted by Alex Neir on Wed, May 30, 2012 @ 02:34 PM
Small Business Credit Card Processing

Given the state of the market today it is becoming increasingly unusual to find a business of any size that does not accept credit cards. Even the smallest mobile business are accepting credit card payments given the decreased cost of mobile processing solutions. In addition, the internet makes it possible for any business to remain open and profitable around the clock with an ecommerce solution.

There are numerous companies offering small business credit card processing solutions. However, the level of service can very dramatically for one provider to another.  

So, as a small business what considerations are necessary if you are ready to proceed with a credit card processing solution?  

Considerations for selecting a small business credit card processing partner.

All credit card processing providers offer their service in exchange for a fee that is tied to the transactions completed by the merchant or business. These fees are made up of the following:

  • Interchange – this is the fee changed by the bank that issued the credit card the customer is using to pay with. This fee is a fixed cost and cannot be negotiated. The fee or rate represents the wholesale price of accepting credit cards. The fee is made up of a percentage of the sale, as well as a per transaction cost.
  • Association Dues and Assessments – these fees are charged by Visa, Master Card, Discover etc. and are also a fixed cost that can’t be negotiated.
  • Interchange Markup or Margin – this is the additional cost the credit card processor adds on to the interchange, dues and assessments in order to make a profit. This fee is negotiable and is determined by the risk profile associated to the industry of the business seeking an account.  

As a small business it is important to understand that you have the ability to negotiate the markup charged by the processor. It is also helpful to understand the different pricing structures for credit card processing.  

While price is an important factor when choosing a provider there are also other elements that should be considered.

  • Track Record – How long has the provider you are considering been in business? Ask for references if possible. Check the provider in the better business bureau. Also, check services like the rip off report.
  • Merchant Agreement – Make sure you review the agreement carefully before signing to make sure you understand the agreement you are making.
  • Network Compatibility – When looking to deploy the processing solution you want to make sure that the provider you select has adequate network compatibility to work with any existing equipment as well as future equipment.
  • PCI DSS Compliance – The Payment Card Industry Data Security Standards are the rules set up by the federal government for the protection of card holder data. It is very important to select a provider that is PCI DSS compliant.
  • Support – Some providers do not offer round the clock support. Additionally, it is common for most providers to outsource support overseas where it is difficult to get the proper level of tech support. There is nothing more aggravating than having an issue with your income and not getting the help you need.

We hope this is helpful as you consider small business credit card processing. If we can be of assistance please don’t hesitate to call our friendly staff at (800)917-8026.

Tags: Interchange Fees, Small Business Credit Card Processing, Accepting Credit Cards

Interchange credit card processing | A simplified overview

Posted by Alex Neir on Thu, April 19, 2012 @ 02:50 PM
Interchange Credit Card Processing

Understanding how interchange affects your business’s credit card processing rates is the single most important thing you should know. Interchange credit card processing is the least expensive way to process credit cards.

Interchange represents the wholesale price of accepting credit cards. The credit card issuing banks and credit card associations sell interchange rates as wholesale to the processing community. The processing community then marks up interchange in order to make a profit. So, understanding how that markup is determined can improve your ability to negotiate the very best rates available for your business type.

What is Interchange?

Interchange is network of interconnected financial institutions / banks. Every single bank that issues credit cards to consumers is connected to the interchange network. Connection to the interchange network ensures that the account associated with credit card the bank issues can be accessed by Visa, Master Card, Discover etc. Account access is necessary for money verification (approval) and money collection (settlement).   

The credit card issuing banks and the credit card associations control interchange. As a group they determine the fee paid to access the interchange network. The fees are broken down into no less than 185 categories based on the industry of the merchant, how the transaction is being captured and what type of credit card is being used. These fees represent the wholesale rate for accepting credit cards. The amount above interchange that your business pays to process credit cards tells you if your pricing is good, bad or horrible.

Would you like to know if you are overpaying the wholesale interchange rate?

Tags: Interchange Fees, Interchange Pricing, Interchange Credit Card Processing

Interchange pricing vs. tiered pricing | Pay attention to the margin

Posted by Alex Neir on Mon, April 09, 2012 @ 03:59 PM
Interchange Pricing

Interchange pricing and tiered pricing are two popular models used to calculate the rates and fees that your business will be charged to accept credit cards. Both interchange pricing and tiered pricing use interchange to determine the total fees charged for the month.

The term interchange is used to describe the rates that are charged by the credit card associations to accept a piece of plastic as payment. The interchange rates are set by each individual association, Visa, Master Card, Discover, Diners, JCB etc. Interchange rates are associated to each individual transaction according to:

  1. Industry of the merchant (retail, restaurant, supermarket,  etc)
  2. Transaction method used to accept the payment (swiped / keyed in)
  3. Credit card type (debit, credit, rewards card etc.)  

Here are the published interchange rates for both Visa and Master Card:

It is helpful to look at the differences between the two pricing models with an actual sales example. The example given below is for a retail merchant that is swiping 3 different credit cards through a terminal. The qualified rate applies to a swiped check card. The mid-qualified rate applies to a swiped rewards card and the non-qualified rate applies to a swiped corporate card.

Tiered PricingRateVS.Interchange PlusRate
Qualified Rate 1.48% Qualified Rate Interchange + 0.30%
Mid Qualified Rate 2.29% Mid Qualified Rate Interchange + 0.30%
Non-Qualified Rate 3.05% Non-Qualified Rate Interchange + 0.30%

Example sales with tiered pricing

QualificationSaleRateActual InterchangeMarginFee Paid
Qualified Rate $25 1.48% 0.95% 0.53% $0.37
Mid Qualified Rate $25 2.29% 1.15% 1.14% $0.57
Non-Qualified Rate $25 3.05% 2.10% 0.95% $0.76

Example sales with interchange plus pricing

QualificationSaleRateActual InterchangeMarginFee Paid
Qualified Rate $25 1.25% 0.95% 0.30% $0.32
Mid Qualified Rate $25 1.45% 1.15% 0.30% $0.36
Non-Qualified Rate $25 2.40% 2.10% 0.30% $0.60

The fundamental difference between the two pricing models is that the rate in the tiered model is set at a predetermined level. The interchange plus model fluctuates based on the actual amount charged from Visa / Mastercard / Discover (aka Interchange).

It is important to pay attention to the margin. The margin is the difference between the rate that is charge by interchange and the rate your business is billed. With a tiered pricing structure there is quite a bit of margin built into each transaction. So as the number of transactions raises over the month so does the total margin paid. With Interchange plus the margin is pre-negotiated, stays the same for every transaction and effectively lowers your overall costs.

Tags: Interchange Fees, Interchange Plus Pricing, Interchange Pricing

What is interchange? An Explanation.

Posted by Alex Neir on Tue, September 27, 2011 @ 12:21 PM
What is Interchange

What is interchange?

The term ‘interchange’ usually refers to a location where two things meet.  In the credit card business, however, it is a term used to describe a fee paid between banks for the authorization of card transactions.  It is mostly the fee the merchant’s bank pays to the customer’s bank.

With regards to a credit card transaction, the bank that produces the card in a transaction will subtract the interchange fee from what it pays the merchant’s bank handling credit or debit card transactions for that merchant.  Then, the merchant’s bank pays the merchant the amount of the transaction minus the interchange fee.   

It is a fact that banks do not make a substantial amount of money from interest charges and late fees from those valued customers who pay in full each month.  Instead, they earn a profit on the interchange fee charged to the merchants.

It’s important to remember that merchants pay ‘merchant discounts’ to their financial institution, not interchange fees.  There is a very distinct difference.  Visa, for example, uses interchange reimbursement fees as transfer fees between financial institutions for stability and growth.

What about the ATM? 

When it comes to ATM’s however, the card issuing bank pays the fee to the acquiring bank for maintenance of the machine.

Do they vary?

Indeed.  In the US, the average fee is approximately two percent of the transaction value.  In the last few years, however, these interchange fees have become a subject of controversy because they have an intricate pricing configuration.  In fact, on June 8th, 2011, the announcement was made that the amendment to delay implementation of the Durbin Amendment that would cap these fees fell six short of the sixty needed to break a filibuster.

Then on June 29th, Wednesday, a final ruling was established by the Federal Reserve creating a sensible and proportional criteria for a debit interchange fee. Issuers are required to include two debit networks (non-affiliated).  This is for the purpose of routing. Details are available at: Durbin Amendment.

Tags: Interchange Fees, What is interchange, Durbin Amendment

Payment Processing Solutions for Every Business

Posted by Alex Neir on Tue, September 20, 2011 @ 12:24 PM
Payment Process

Payment Processing Solutions for Every Business

Every business needs a payment process that is convenient, well structured and dependable. The right process will save you time, will be cost effective and will eliminate potential issues from occurring. 

For Any Business

Whether your business is in retail, media, sports, health, etc., they can all benefit from credit card payment processing. This payment process is suitable for any business.

  • Retail - Merchandise is purchased and sold from an established and fixed location.
  • eCommerce - Used for buying and selling products and/or services via electronic systems, such as the Internet and other PC networks.
  • Mail Orders / Telephone Orders - The main source of income for a merchant is provided through mail and telephone sales.
  • Wireless - Wireless processing is utilized by merchants who operate their business remotely. A mobile business needs the ability to effectively process wireless payment transactions.

With the right service you will receive:

  • Experience - The right payment processor will have the experience and know how to efffectively deal with and meet any need that may arise.
  • Exceptional customer service - The right processing service will be available to answer any questions or concerns 24 hours a day, 7 days a week.
  • Expert Chargeback Management - Working with the merchants to decrease the amount of chargeback conflicts and disputes, as well as supply adequate procedures for payment processing.
  • Effective Fraud Prevention Tools - The right processor will effectively combat fraud. A good process will help to reduce fraudulent transactions from occurring. The processor will support systems including, MasterCard SecureCode, Verified by Visa, the Card Security Codes (CVV2, CVC 2, and CID) and the Address Verification Service (AVS).

The Takeaway

Merchants must be diligent in their search for the appropriate payment processing solution for their business. The right processor will be able to suit your needs and will provide the most efficient solutions. The ideal processor will have a well maintained processing structure, will meet specific areas of expertise and will provide excellent rates.

If you would like to speak to a represenative at Maxx Merchants to discuss a customized solution specifically addressing your businesses unique needs please call (800)917-8026. Or shoot us a messaage on our contact us page.

Tags: Interchange Fees, Merchant Account, Mail and Telephone Order, Payment Processing, Internet Credit Card Processing

3 Ways the Durbin Amendment Can Help Your Business

Posted by Alex Neir on Tue, September 06, 2011 @ 01:57 PM
Durbin Amendment

3 Ways the Durbin Amendment Can Help Your Business

The Durbin Amendment has been highly debated since it was added to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. There are however, a few ways that it can help people with their business. Listed here are three ways that merchants will benifit.

1) The Durbin Amendment and what it means to business 

  • Under the Durbin Amendment, card swipe fees will be regulated to a lower rate.
  • Merchants will also be allowed to apply surcharges on purchases made with either credit or debit cards.
  • In either of these cases, the swipe fee is detracted away from the consumer.

2) Businesses consumers will benefit

  • It is speculated that consumers could see lower prices as a result of a swipe fee reform. A Fed Chairman has publicly said that he expects certain retailers in a competitive and low margin sector could drive down prices, while those in smaller competitive sectors may opt to pocket their savings. These are savings that could be noticable to consumers.

3) Merchants will benefit

  • Proposed fees will cover the risk of fraud and other overhead charges and as of right now the fees a major source of profit margin for banks offering checking accounts. As a result, the competition between banks and other financial institutions is causing profits to be used to subsidize free premium services like surcharge free ATM's and no charge checking accounts. If the fees dropped to the proposed 7 to 12 cent charge, this would surely create a much larger transfer of wealth to the merchants from the card issuers.

The Durbin Amendment is not without its flaws and criticisms, but the advantages of such an amendment is much more prosperous to the consumers and businesses in the log run.

Tags: Interchange Fees, Credit Card Processing Denver, Durbin Amendment

What the Durbin Amendment Means to Your Merchant Account

Posted by Alex Neir on Tue, July 26, 2011 @ 12:37 PM
Durbin Amendment

What the Durbin Amendment Means to Your Merchant Account

The Durbin Amendment is new legislation that reduces the interchange fees associated with debit card processing. According to the Federal Government, which uses a transaction amount of $38 as an average, the cost of processing a debit transaction will be reduced by nearly 50%.

So, the cost of processing a debit card transaction is being cut in half, this is great news for businesses accepting credit cards, right?

Well, not necessarily.

In order for a business to benefit from the reduced processing rates the business must be on an interchange plus pricing structure. With interchange plus pricing the actual cost (interchange) associated with each credit card transaction is passed directly to the business. With tiered pricing or ERR pricing the cost of the credit card transaction is fixed at a specific tier. So, when the interchange fees are lower for a debit transaction, but the tier price remains the same there is no savings associated with the transaction. However, the margin the processor is collecting has gone up.

So, the Durbin Amendment has reduced the cost associated with accepting credit cards for merchants or businesses that have interchange plus pricing. If you would like to benefit from the Durbin Amendment you need interchange plus pricing. Find out how to get interchange plus pricing! 

Tags: Interchange Fees, Credit Card Processing Denver, Durbin Amendment

Top 10 questions to ask when applying for a merchant account

Posted by Alex Neir on Thu, June 09, 2011 @ 07:24 AM
Applying for a merchant account
Top 10 questions to ask when applying for a merchant account

Applying for a merchant account can be a little overwhelming. You may feel that you don’t have enough experience or knowledge about the process to ask the right questions to avoid being over charged. We have created this useful guide to help you focus on the most important aspects of a merchant account as you compare providers.

What are interchange fees and how are they determined?

The bulk of the costs associated with a merchant account come from interchange fees. Interchange fees are charged from the credit card issuing bank and major associations (Visa, Master Card, Discover, etc) and represent the fixed cost that all processors are working off of. Understanding how interchange works will give you a fundamental understanding of how different price structures are setup.

What price structure will be set up for my business?

There are many different price structures that can be set up for any given business. Each one will interact with the interchange fees in a unique way. The three most popular pricing structures are:

With a tiered model the interchange fees are set at specific levels based on how the credit card being processed is qualified. The credit card processor’s mark up is built into the tier. ERR pricing sets the interchange fee at a specific level and charges a surcharge for any transaction that does not qualify. Interchange plus is the most transparent and passes the exact level of interchange directly through to the merchant’s bill. The credit card processor will add a markup on the merchant statement for the cost of the service they provide.

What can I do to make sure my credit card sales qualify for the best rate?

Remember that the bulk of your processing fee for each transaction is determined by the interchange rate the transaction qualifies for. Therefore it is very important to understand how to process your customer’s credit cards to ensure the lowest interchange fee is applied. Additionally, there is terminal software called BIN seeker that will automatically help route your transactions to the lowest level of interchange.

How will my fees be deducted from my account?

There are two settlement options that are offered by all processors. They are daily settlement and monthly settlement. With daily settlement you’re processing fee and per transaction fee will be deducted from each sale before it is deposited into your account. With monthly settlement each sale will be deposited into your account in full. Then at the end of the month the total fees for the month will be deducted from your account.

If I need equipment will it be leased or do I have the option to purchase it?

Never lease equipment. Terminal equipment can be purchased starting at $150. With a lease you will be locked into a very long term contract in which you will pay upwards of 1,500% or more of the actual cost of the equipment. Be very carful with processors that are pushing leased equipment as this is good signal that they don’t you have your interests in mind.

Is your equipment proprietary?

Proprietary equipment will only work with that specific processors network. Proprietary equipment makes it impossible for the terminal equipment to be re-programmed by another processor if your business decided to switch processors in the future. There are numerous manufactures that provide non-proprietary equipment that work will virtually all credit card processing networks. 

What is the early termination fee?

Most, if not all, credit card processors with have an early termination fee written into the terms of service. It is important to understand what that fee is as you compare providers. It is also important that know that the fee is negotiable.

Is there a monthly minimum fee associated with the account?

The monthly minimum fee is the minimum amount of fees that will be charged to the account over the course of the month. As the fees for the account begin to accumulate they are deducted from the minimum. So if you have a monthly minimum fee of $25 on the account and your total fees for the month are $16.57 the remaining amount of $8.43 would be applied to ensure you met the minimum. Monthly minimum fees are completely negotiable.

What is the annual fee for the account?

Most credit card processor’s will have an annual fee associated with the merchant account. This is another fee that can typically be negotiated so be sure to ask.

What is the PCI Compliance charge?

PCI DSS (Payment Card Industry Data Security Standards) compliance has to do with how your business handles credit card information from your customers. Identity theft has become an epidemic and the credit card associations are taking security of credit card information very seriously. Most all credit card processors will have a PCI Compliance check for businesses they provide service for. Most will also have an associated fee for ensuring compliance. This is another fee that can be negotiated.

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Tags: Interchange Fees, BIN Seeker, Applying For a Merchant Account, Credit Card Processing Fees, Monthly Minimum Fee

Where do my credit card fees come from?

Posted by Alex Neir on Mon, April 04, 2011 @ 06:50 AM
Credit Card Fees

Where do my credit card fees come from?

The credit card fees associated to your merchant account come from various sources and together represent the effective rate you pay to process credit card through your business. The sources of your credit card fees can be grouped into the following categories.

  • Interchange Fees
  • Dues and Assessments
  • Processor Markup
  • Processor Service Fees
  • Junk Fees

Interchange Fees

Interchange fees represent the true fixed cost of processing a credit card transaction. The definition of Interchange is: the network of interconnected financial institutions set up by the major associations (Visa, Master Card, etc) to facilitate the use of a plastic card to make payment. (More information on Interchange) These fees are fixed by the associations and can’t be negotiated.

Dues and Assessments

These fees are also fixed by the major associations, non-negotiable and applied to your merchant account every month. Currently Visa and Discover have dues and assessment of 0.0925% and Master Card has dues and assessments of 0.095%.

Processor Markup

The processor markup represents the beginning of negotiable credit card fees. The processor’s markup is discretionary and represents the cost the processor is charging for the services they are providing. The markup can be bundled with Interchange or separated out depending on the pricing structure that is offered. (More information on credit card pricing structures)

Processor Service Fees

The service fees charged by your processor are also negotiable and represent the additional costs you will be charged by the processor. These fees include but are not limited to; monthly statement fee, monthly minimum fee, per transaction fee, batch fee, PIN debit fee, address verification fee, annual fee, account access fee,  PCI verification fee, termination fee, chargeback fee, set up fee, application fee, reprogram fee, etc

Junk Fees

Junk fees represent the credit card fees that are bogus. It is a common practice among some credit card processing companies to advertise very low rates and fees to attract businesses to sign up. Once the business signs up the processor slaps on enough junk fees to make up for the below market advertised rate. What makes this practice even more deplorable is that the fees are described very carefully as to make them sound legitimate. For example: Interchange BIN location, Interchange recalculation, Association access, etc.

With any merchant account it’s important to understand that you have a lot of negotiation opportunity and by simply knowing what to ask you can save your business a great deal of money when it comes to credit card fees.

For a review of your current fees or to set up a new account please contact our friendly staff at (800)917-8026.

Tags: Interchange Fees, Credit Card Processing Fees, Effective Rate

What is a monthly minimum fee?

Posted by Alex Neir on Thu, March 03, 2011 @ 04:09 PM
Monthly Minimum Fee

What is the monthly minimum fee on a merchant account?

The monthly minimum fee is the minimum amount you will pay in interchange fees on your merchant account regardless of how much, or rather how little is processed for the month.

It is important to understand that your monthly minimum fee is based on your total interchange fees and nothing else. For a list of all the fees associated to a merchant account please see: 7 items to consider with affordable credit card processing

Let look at an example. Let’s say you have a small business and credit card payments vary each month. Some months you have a lot and some months none at all. Below are the rates/fees set up on the account

  • Qualified Transactions: 2.39%
  • Non-Qualified Transactions: 3.39%
  • Statement Fee: $10.00
  • Monthly Minimum Fee: $15.00

All transactions are for $100 for simplicity.

Month one you have 3 qualified transactions and 1 non-qualified transaction.
The total interchange fees for the month: ($2.39 x 3) + ($3.39 x 1) = $10.56. This amount is less than the agreed upon monthly minimum fee of $15.00 so the $15.00 minimum gets applied to the bill.

Your month end bill would be: $25.00. Interchange plus the statement fee.


Month two you have no transaction.
The total interchange fees for the month = $0.00. This amount is less than the agreed upon monthly minimum fee of $15.00 so the $15.00 minimum gets applied to the bill.

Your month end bill would be: $25.00. Interchange plus the statement fee.


Month three you have 4 qualified transactions and 5 non-qualified transaction.
The total interchange fees for the month: ($2.39 x 4) + ($3.39 x 5) = $26.51. This amount is greater than the agreed upon monthly minimum fee of $15.00 so the $26.51 gets applied to the bill.

Your month end bill would be: $36.51. Interchange plus the statement fee.

From this example you can see the difference it makes to negotiate your monthly minimum. For additional help please contact our friendly staff at (800)917-8026 as we welcome the opportunity to help with any payment processing questions.

Tags: Interchange Fees, Credit Card Processing Fees, Monthly Minimum Fee